UBS: Tiger "Key" to Apple's Mac Growth

By TMO Staff

Apr 12th, 2005 5:00 PM EDT

With Tuesdayis announcement that Mac OS X 10.4 Tiger will be released April 29, UBS Investment Research analyst Ben Reitzes predicted a bright future for Apple Computeris software business Tuesday, saying the company will reap some US$1 billion in total revenue from Tiger and other applications this fiscal year.

"We believe the next big "multiplier" business to get attention will be Appleis software," Reitzes said in a commentary obtained by The Mac Observer. "We believe the math behind Appleis software potential is attractive, making estimates conservative...We believe Apple can benefit from two full months of Tiger sales in its fiscal 3Q05 (June quarter)."

Mr. Reitzes said his firm believes that Appleis software is extremely well suited for "the digital lifestyle" that consumers are rapidly adopting.

"With delays at Microsoft for Longhorn and battles with viruses, we believe the time is right for Apple to regain share on the back of Tiger," he said. "Over 10 million Apple users have still not upgraded to systems that run OSX, and we believe that Tiger may push many over the edge."

UBS estimated the annual revenue run rate of Appleis iTunes business to be $500 million, $400 million for iPod peripherals, $2.5 billion for Apple retail sales and $4 billion for iPod sales.

"With increased sales of Macs and an already large install base of users, we believe the revenue opportunity for software could be significant," Mr. Reitzes wrote. "In fact, one could argue that with its new stores, an enhanced online store, and broadened distribution, this could be Appleis year to see its software sales surge."

Assuming no major "bugs" when Tiger is released, Mr. Reitzes said he believes Apple may see up to 25% of its existing Mac OS X users upgrade to Tiger over the next few quarters, compared to 10-12% for a typical upgrade.

"As a result, we believe our software revenue estimates of $990 million for (fiscal year 2005) and $1.18 billion for (fiscal year 2006) are conservative," he wrote.

Mr. Reitzes also predicted that software could help hardware and predicted a 33% jump in CPU sales for the fiscal year. On the downside, UBS is estimating Power Mac sales will fall 10.7% for the fiscal year while PowerBook sales will go down 12.3%.

Mr. Reitzes is maintaining his iBuy2i rating on Apple (AAPL) with a price target of $50 per share.